Impact of Russia’s Invasion of Ukraine on Central and Eastern European Capital Markets
Impact of Russia’s Invasion of Ukraine on Central and Eastern European Capital Markets

Author(s): Rui Dias, Catarina Revez, Nicole Horta, Paula Heliodoro, Paulo Alexandre
Subject(s): Financial Markets, Russian war against Ukraine
Published by: Udruženje ekonomista i menadžera Balkana
Keywords: Contagion effects; Russian-Ukrainian invasion; Portfolio diversification
Summary/Abstract: On February 24th, 2022, Russia launched a full-scale military invasion against Ukraine, marking a sharp escalation to a conflict that began in 2014. Several analysts have called the invasion the largest military invasion in Europe since World War II. Considering these events this paper aims to test the efficient market hypothesis, in its weak form, in the capital markets of Hungary (BUX), Croatia (CROBEX), Russia (IMOEX), the Czech Republic (PX PRAGUE), Slovenia (SBITOP), and Poland (WIG) over the period from April 25th, 2017, to April 22nd, 2022. The results show that the random walk hypothesis is not supported by the analyzed financial markets in this period with the occurrence of the 2020 global pandemic and the Russian invasion of Ukraine. The values of the variance ratios are less than unity, implying that the returns are autocorrelated over time and mean-reverting, and no differences between the financial markets have been identified. This has implications for investors, since some returns may be expected, creating arbitrage opportunities and abnormal returns, contrary to the assumptions of random walk and informational efficiency. In conclusion, we believe that investors should eventually exercise some caution, at least while this uncertainty persists, and invest in less risky markets to mitigate risk and improve the efficiency of their portfolios.

• Details
• Contents